Ukraine proposes new three-way trade commission with EU and Russia after
parliament failed to agree deal to release Yulia Tymoshenko

Ukraine formally withdrew from negotiations on a trade and co-operation pact with Europe on Thursday delivering a major diplomatic victory for Russia which had threatened to puch its neighbour into bankruptcy.

Officials announced that the Ukrainian government would put a stop on talks to sign an association pact with the EU while opening an “active dialogue” with Moscow.

The move comes after weeks of intense diplomatic pressure on Kiev to complete accession arrangements at an EU summit in Vilnius next week.

Earlier on Thursday, the failure of the Ukrainian parliament to pass a series of bills including legislation that would have seen the release of Yulia Tymoshenko, the former prime minister, was declared unacceptable by Brussels. A vote in the Ukrainian parliament rejected a bill to allow Mrs Tymoshenko to leave Ukraine for medical treatment in Germany.

Stefan Fuele, the European Enlargement commissioner, said he would return to the country, just a day after returning from a three-day mission to Ukraine on Wednesday.

The Kremlin welcomed the announcement. Moscow had made clear Kiev must chose between the EU trade bloc and its own trading arrangements with former Soviet countries.

It suspended imports of key Ukrainian products and Gazprom, the Kremlin-controlled gas producer, warned it was tightening credit terms for its Ukrainian clients.

Kiev’s decree said that the decision was taken in order to “ensure the national security of Ukraine” after taking into account the effects on trade with Russia. It said the government was determined to “restore lost trade volumes with the Russian Federation”.